Is Football an Unrelated Business?

It was just about six months ago that the IRS decided that it would start looking into unrelated business income reporting on a large scale. So it is perfect timing that this week the National Labor Relations Board (“NLRB”) is holding hearings to consider whether Northwestern’s football players can unionize.

What does unionization have to do with unrelated business income? To meet the union requirements, union experts expect players to argue that they are more like employees of a business who are trying to make money rather than students pursuing their educational goals.

If the NLRB allows for the union, it will make it more difficult for Northwestern to argue that its football program is in furtherance of the universities’ tax-exempt purposes. And if Northwestern is unable to make this argument, then it is likely that the IRS will see the football program as an unrelated business, and will start assessing unrelated business income tax on the income therefrom.

Some believe that regardless of whether the NLRB allows the players to unionize, income from college football should be taxed.

Of course, if the IRS takes this position we might see colleges forming 501(c)(6) organizations to “own” their football programs. Why might they do this? Because Congress, whether in its wisdom or largesse, recognizes professional football leagues to be exempt under that section of the Internal Revenue Code.

What does this all mean for your nonprofit? If your organization is contemplating activities that may constitute unrelated business, speak with us first.